The advancements in technology have made room for new-age crimes. Fraudsters have evolved over the years and use new techniques to commit crimes. To combat financial crimes, organizations must stay ahead in their security operations. Financial criminals launder money between USD 800 million and 2 trillion annually. The money laundering numbers will increase in the coming years. More than 85% of money laundering crimes go unnoticed by financial institutions and concerned authorities. Money laundering is not the only financial crime that has been a headache for financial institutions. Tax evasion, counterfeiting, terror funding, wash trading, and many other crimes have been major concerns for governments and organizations.
Read on to understand how TM (Transaction Monitoring) can help combat financial crimes.
Are you familiar with TM?
TM is related to monitoring the transactions of clients and customers regularly. A financial institution will serve individuals and organizations (corporate entities). It is crucial to monitor individual or company transactions via TM tools. The TM tools review every internal or external transaction based on some rules. These rule-based systems can identify suspicious activity in real time, thus giving the organization time to act. As of now, automated TM systems are available in the market. AI-led TM systems can flag suspicious activity without any manual interference. TM is essential for all organizations that move/manage on behalf of their clients or customers. For the same rationale, TM is a must for financial institutions as they move and manage the money of multiple customers.
Understanding the Role of TM in Combating Financial Crime
TM is the first step for any financial institution in anti-money laundering operations. You can only start the investigation if you spot an anomaly in financial transactions. Spotting suspicious activity with TM can save huge amounts of money from being laundered. Financial institutions must think of implementing anti-money laundering operations with transaction monitoring. No financial institution wants to become a hub for money laundering operations. Even if the institutions don’t ask for it, criminal masterminds use new techniques and launder money. Financial institutions will have better chances of determining illegal activities by monitoring every transaction.
TM systems aren’t only limited to anti-money laundering operations. They can also help uncover other financial crimes like terror funding and bribery. Consider a PEP (Politically Exposed Person) who has a bank account with a financial institution. The individual suddenly receives a lumpsum amount from an unknown bank account. The TM system will generate a red flag for the particular transaction, as the amount is more than the individual’s salary. As a result, the financial institution can alert the authorities or investigate further to uncover the bribery case. Similarly, authorities can determine wash trading, terror funding, corruption, and other crimes with the help of TM systems.
Must Read: Best Practices for Conducting Enhanced Due Diligence on Third-Party Vendors and Suppliers
TM is also essential for organizations to mitigate risks. There are several risks for organizations associated with financial crimes. When a financial institution becomes the center for financial crimes, it might lose revenue. Criminal masterminds might dupe the organization of their money. The money might belong to multiple clients or customers. Reputational risks are also associated with financial crimes. A bank becomes infamous for being the center of some money laundering attempts. Even if the bank was not involved primarily, its use as a center shows it badly. No customer might want to connect with a bank that has lost its reputation due to money laundering scandals. Similarly, one can mitigate many others risks with the help of transaction monitoring operations.
Transaction monitoring is also essential in maintaining compliance with state/central laws. In 2020, global banks paid $10.4 billion in penalties for not complying with anti-money laundering laws. Regulatory authorities want financial institutions to make policies against financial crimes. They must do so to avoid fines and license cancellations. With the help of new-age TM systems, financial institutions can show that they are combating financial crimes.
In Conclusion
Criminals have found new ways to launder money, fund terrorism, or wash trades. In such a case, financial institutions must start using AI-led TM systems. These systems use pattern discovery and predictive analytics to identify suspicious activity. Start investing in TM systems for combating financial crimes now!
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